Free Exchange: Surf’s Up

The Economist, May 19, 2012

Merger waves mean that markets can consolidate rapidly.  The next one is coming.

“Mergers happen in waves, so the number of firms collapses suddenly rather than dwindling over time.  And then next one may soon crest.”

“…Research suggests that shocks start merger waves.  Some firms are quicker than others to respond to the disruption, or suffer less damage.  This divergence allows the strong to mop up the weak.” Examples given are technological shifts as occured then the telephone and telegraph were invented, and more recently, mergers in the computer manufacturing and business services markets that were disrupted by the internet.  Other types of shocks such as slumps in demand and regulatory shocks can trigger deals…

Once one merger occurs, copycat transactions in the same industry are more likely… A wave starts to form.”

Will a perfect merger wave form?  Firms have built “piles of cash”.  ” A global shock has hit most industries and there is plenty of spare capacity.”

This was written in May, but during the winter in the Northern Hemisphere waves build up.  Surfers look for the perfect wave, but corporations may have to wait until after the November elections and even into January of 2013 when the newly elected take office.



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